Long-Dreaded Amazon.com Threat to Drug Middlemen Draws Close

Published on January 31, 2018.

Jeff Bezos Credit: Mike Kane/Bloomberg

A day that prescription-drug middlemen had long feared finally arrived.

The industry awoke to the news Tuesday that Amazon.com Inc. was joining with Berkshire Hathaway Inc. and JPMorgan Chase & Co. to form a new health-care business, in an attempt by three of the world's best-known companies to contain the spiraling cost of keeping their U.S. workers healthy.

Other groups of big employers have tried to improve worker health care in the past, but none have dethroned the pharmacy-benefit managers who drug companies and some lawmakers claim aren't transparent about the pricing deals they strike on behalf of health plans, and about how much money they keep for themselves.

The new partnership has the potential to be one of the most ambitious employer efforts to date to control health expenses. While the companies provided few details, their combined clout and expertise in technology and finance could be used to bring drastic changes to the way prescription drugs are paid for, according to analysts.

"They could completely cut out the middlemen here," said Pratap Khedkar, a managing principal at the health consulting firm ZS Associates. By doing so, Amazon, Berkshire and JPMorgan could gain more control over their spending and save money pharmacy-benefit managers currently consume, he said.

'A bit arrogant'

Health costs have been an increasing burden for workers and businesses in the U.S., where about half the population gets health insurance through work. On average, 8.3 percent of total compensation costs for civilian workers went to health care in 2017, up from 7.3 percent in 2004, according to U.S. government data.

Change is likely to be slow in arriving. The companies outlined few concrete steps in their announcement, and making big changes to the entrenched, inefficient U.S. health system will likely prove more complicated than Jeff Bezos and Warren Buffett imagine, some health experts say.